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PDF SOLUTIONS INC (PDFS)·Q4 2024 Earnings Summary

Executive Summary

  • Record Q4 results: revenue $50.1M (+22% y/y, +8% q/q), non-GAAP EPS $0.25, GAAP EPS $0.01; GAAP gross margin 68%, non-GAAP 72% .
  • Analytics revenue surged to $47.9M (+22% y/y) while IYR modestly improved to $2.2M; backlog ended at $221.4M (vs. $239.2M in Q3) .
  • Management highlighted a key catalyst: conversion of an eProbe manufacturing evaluation into a sale, strong Exensio bookings, and rising Cimetrix runtime licenses; 2025 revenue growth guided to approach 15% y/y (and later updated to 21–23% including secureWISE) .
  • Narratives to watch for stock reaction: accelerating eProbe adoption (ship >4 machines expected in 2025), expanding AI/MLOps deployments, and advanced packaging momentum across foundries/IDMs; quarter-end AR spike tied to title transfer sale seen as timing-related per CFO .

What Went Well and What Went Wrong

What Went Well

  • “Record quarterly total revenues of $50.1 million” and “record quarterly analytics revenue of $47.9 million,” demonstrating second-half growth inflection; non-GAAP EPS of $0.25 matched Q3 despite GM mix shift .
  • CEO: completed eProbe manufacturing evaluation early, converted to sale; multiple Exensio deals and growth in Cimetrix runtime licenses supporting base-business momentum .
  • CFO: full-year gross margin improved to 74% despite lower gainshare; disciplined spending aided margin progress toward 75% target model .

What Went Wrong

  • GAAP gross margin declined sequentially to 68% (from 73% in Q3) on mix; GAAP EPS fell to $0.01 (from $0.06 in Q3) even as revenue rose .
  • Backlog decreased to $221.4M vs. $239.2M in Q3; management flagged potential quarter-to-quarter “lumpiness” from eProbe sales timing .
  • Accounts receivable elevated at Q4-end, impacting cash flow; CFO characterized collections as progressing well and driven by title-transfer mechanics of the eProbe sale .

Financial Results

Core P&L and Margins (USD Millions and %)

MetricQ2 2024Q3 2024Q4 2024
Total Revenue ($M)$41.661 $46.409 $50.085
GAAP Gross Margin (%)71% 73% 68%
Non-GAAP Gross Margin (%)75% 77% 72%
GAAP Diluted EPS ($)$0.04 $0.06 $0.01
Non-GAAP Diluted EPS ($)$0.18 $0.25 $0.25

Segment Revenue

Segment ($M)Q2 2024Q3 2024Q4 2024
Analytics$38.114 $44.750 $47.926
Integrated Yield Ramp (IYR)$3.547 $1.659 $2.159
Total$41.661 $46.409 $50.085

Geographic Revenue Mix (Quarterly)

Region ($M)Q4 2023Q3 2024Q4 2024
United States$22.708 $21.065 $16.320
Japan$2.460 $6.275 $11.932
China$4.562 $5.673 $4.576
Taiwan$4.679 $6.273 $1.150
Rest of World$6.716 $7.123 $16.107
Total$41.125 $46.409 $50.085

KPIs and Balance Sheet Snapshots

KPIQ2 2024Q3 2024Q4 2024
Backlog ($M)$243.2 $239.2 $221.4
Cash + ST Investments ($M)$122.7 (96.4+26.3) $120.2 $114.9
Operating Cash Flow ($M)$0.684 $9.275 $1.606
Capex ($M)$5.320 $4.595 $5.847
Effective Tax Rate (%)2% 39% 63%

Note: Operating cash flow, capex, and tax rates sourced from management reports .

Non-GAAP Adjustments Highlights

  • Non-GAAP excludes stock-based comp, amortization of acquired tech/intangibles, certain legal proceedings costs, non-recurring legal/tax/accounting services, loss on damaged equipment in-transit (net of recovery), and tax valuation allowance effects; reconciliations provided in exhibits .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue Growth (y/y)Q4 2024“Grow y/y in line with long-term 20%” (from Q3 call) Actual delivered +22% y/y Beat guidance
Total Revenue Growth (y/y)FY 2025“Approaching 15%” Updated to 21–23% y/y including secureWISE (purchase accounting assumed) Raised (post-transaction)
Gross Margin (LT Target)LT Model75% target reiterated 75% target reiterated Maintained
Operating Margin (LT Target)LT Model20% target reiterated 20% target reiterated Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
eProbe adoption & modelTwo customers with high usage; building capacity (4–8/yr); subscription model considered Eval ahead of schedule; >10x sensitivity/throughput in memory pilots; capex ramp Eval converted to sale; expect to ship >4 in 2025; title-transfer sale increases AR; acceptance completed Accelerating deployments; new revenue model
AI/MLOps & guided analyticsFirst MLOps contract; pilots; cloud expansions; test-time reduction use cases Multi-pilot progress; cross-insertion model orchestration; partnerships with test OEMs High receptivity; multiple pilots; AI requires semantic data alignment; broader Exensio cloud/test deployments Broadening adoption
Advanced packaging & OSATComplexity and test insertions; SMH/ERP integration Leaders driving process control; wider equipment runtime license demand OSAT collaboration expected to rise; equipment vendor participation to grow Increasing ecosystem collaboration
Macro/geography & ChinaMixed industry; backlog growth; capex to support DFI Mixed bag; weakness in China affecting IYR; shift to Taiwan/Korea/US Mixed demand; Asian customers stronger in Q3–Q4; cautious in other sectors Mixed but stabilizing in niches
Backlog/bookingsBacklog $243.2M; bookings lumpiness 9M bookings > FY23; backlog ~$240M Backlog $221.4M; pipeline supports 2025 shipments Slightly down; pipeline intact
R&D execution & capexCapex elevated for DFI; OCF positive history Capex rising to support eProbe builds Capex $5.8M; OCF $1.6M; continued investment Continued investment
SAP/SMH & connectivitySMH deployment tied to SAP S/4HANA; Cimetrix runtime uptick SAP collaboration advances; equipment connectivity growth Cimetrix runtime license growth noted; secureWISE enhances connectivity footprint (post-Q4) Expanding connectivity stack
Memory/HBMEarly memory wafer pilots; strong interest Memory evals promising; 10x advantages reported DRAM/HBM eProbe applications expanding New vertical expansion

Management Commentary

  • CEO: “We completed an ongoing manufacturing evaluation of an eProbe machine earlier than the customer’s schedule, resulting in the sale to this new leading edge customer…booked multiple Exensio deals, and saw growth in our Cimetrix connectivity business from runtime licenses.”
  • CFO: “For the fourth quarter, our gross margin was 72%, and we reported EPS of $0.25 per share…we remain committed to our target model…20% y/y revenue growth rate, 75% gross margin and 20% operating margin.”
  • CEO on 2025: “We anticipate being able to ship over 4 machines…timing…could drive some additional lumpiness quarter-to-quarter.”
  • CEO on AI: “It is necessary to organize semiconductor data using a semantic model…direct connections…and collaboration across the supply chain is necessary.”

Q&A Highlights

  • eProbe pipeline: Combination of new and repeat customers across advanced logic and DRAM; expect >4 shipments in 2025; learning curve with title transfer; acceptance complete; support recognized over time .
  • Backlog and AR: Backlog down q/q; AR elevated due to title transfer billing; CFO sees collections progressing with no concern .
  • Business mix: Advanced packaging demand rising; OSATs poised to play larger roles; HBM/DRAM apps reintroducing software opportunities beyond eProbe .
  • Revenue recognition: Machine revenue recognized upon acceptance; services/support ratable thereafter .

Estimates Context

  • Wall Street consensus from S&P Global for Q4 2024 was not retrievable at this time due to SPGI daily request limit; therefore comparisons vs consensus are unavailable. Values would have been sourced from S&P Global if accessible.
  • Given the strong y/y and q/q revenue/EPS trends, sell-side models may need to reflect: higher analytics run-rate, potential GM mix normalization (from 77% in Q3 to 72% in Q4), and eProbe-related revenue lumpiness with elevated AR and backlog dynamics .

Key Takeaways for Investors

  • The growth engine shifted into high gear: revenue +22% y/y, analytics +22% y/y, sustained non-GAAP EPS $0.25 despite margin mix—underscoring durable demand for Exensio/Cimetrix and initial eProbe monetization .
  • eProbe is a strategic inflection: early evaluation-to-sale conversion, >4 shipments expected in 2025, and expanding DRAM/HBM/advanced logic applications; watch for quarter-to-quarter lumpiness and AR/billing effects .
  • Backlog declined, but pipeline supports 2025 growth; base software (Exensio, connectivity) remains robust, cushioning cyclicality in IYR and hardware timing .
  • Margin cadence matters: Q3’s 77% GM benefited from perpetual licenses; Q4 at 72% reflects mix—models should anchor to ~74–75% LT target, adjusting for product mix and transaction timing .
  • AI/MLOps is gaining traction, requiring semantic data alignment and tighter tool/ERP integration; expect multi-quarter ramp across test and manufacturing analytics, with indirect pull-through for Exensio cloud and SMH .
  • Connectivity stack is expanding (Cimetrix runtime growth, secureWISE acquisition pending/closed), potentially increasing platform stickiness and data/analytics monetization across fabs and OSATs .
  • Near-term trading: Focus on eProbe deal flow (shipments, conversions, acceptance), backlog trajectory, collections/AR normalization, and any post-acquisition guidance updates; medium-term thesis: platform-led analytics + hardware adjacency driving 15%+ top-line CAGR with LT margin leverage .